Canada's central bank has cut its key interest rate from 1% to 0.5%, a record low.
Incredible......I even can`t believe it.Before I saw this news,I knew than UK economy has been impacted deeply,and in order to recover from economy crisis,and to encourage demand, government published more and more acceptable policy...one of those is to dercease the interest rate to 1%.
But Canada government published this policy,so what might happen in the future?
Demand:as the interest rate goes down to 1%,it is more likely to encourage consumers to expend more money on goods and services.Furthermore lower interest rate might also encourage people to take a short or long-loan to start a business(might not )or pay for the mortgage.In conslusion,the aggregate demand will shift to the right....
EXCHANGE RATE:the main key point---exchange rate, the related to the interest rate,if the interest rate goes down, the exchange rate might fall,therefore it is cheaper for the exporters and more expensive to the importers,it may have a balance of payment surplus(if other factors are equal,the GDP will increase???maybe ...we will talk about it later...)
I/X:as for the import and export.Firstly let`s think about import,because of the low interest rate,people are more likely to buy....but we don`t know whether it is made in China or someoneelse...
G.S:reducing interest rate also will affect the government spending to increase the financial support like subsidy to the small businesses,help car industry or nationalise the bank...(like Uk)
TAXATION:the VAT tax will fall ....encourage consumers...and tariffe,another kind of tax,might reduce...to fit for the demand...
SAVING:definitely will goes down...
AFTER ALL...let`s think about GDP?will it increase?
IF interest rate...fallen,
government spending increase(if others keep equal):GDP increase
consumption increase(if others kep equal):GDP increase
investment increase(.....):GDP increase
export>import(...):GDP increase
BUT!
IF interest rate ...fallen
the taxation decrease,government gain less from tax,the government spending decrease(...):GDP decrease
investment might not support the CAN`s economy because it`s risky,and can even get profit...
investment fallen(...):GDP decrease
